We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Radian Group Inc (NYSE:RDN) and determine whether hedge funds skillfully traded this stock.
Is Radian Group Inc (NYSE:RDN) a healthy stock for your portfolio? Prominent investors were getting less bullish. The number of bullish hedge fund bets fell by 1 recently. Our calculations also showed that RDN isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). RDN was in 28 hedge funds' portfolios at the end of the first quarter of 2020. There were 29 hedge funds in our database with RDN positions at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_30621" align="aligncenter" width="392"] Cliff Asness of AQR Capital Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to take a look at the key hedge fund action encompassing Radian Group Inc (NYSE:RDN).
What does smart money think about Radian Group Inc (NYSE:RDN)?
Heading into the second quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RDN over the last 18 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Point72 Asset Management was the largest shareholder of Radian Group Inc (NYSE:RDN), with a stake worth $28.1 million reported as of the end of September. Trailing Point72 Asset Management was Callodine Capital Management, which amassed a stake valued at $20.5 million. EJF Capital, AQR Capital Management, and GLG Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Callodine Capital Management allocated the biggest weight to Radian Group Inc (NYSE:RDN), around 8.36% of its 13F portfolio. EJF Capital is also relatively very bullish on the stock, dishing out 3.5 percent of its 13F equity portfolio to RDN.
Since Radian Group Inc (NYSE:RDN) has experienced a decline in interest from the aggregate hedge fund industry, it's safe to say that there was a specific group of funds that decided to sell off their full holdings last quarter. Intriguingly, Dmitry Balyasny's Balyasny Asset Management said goodbye to the biggest investment of the "upper crust" of funds tracked by Insider Monkey, comprising an estimated $12 million in stock. Mike Vranos's fund, Ellington, also said goodbye to its stock, about $5.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 1 funds last quarter.
Let's check out hedge fund activity in other stocks similar to Radian Group Inc (NYSE:RDN). We will take a look at bluebird bio Inc (NASDAQ:BLUE), Ultragenyx Pharmaceutical Inc (NASDAQ:RARE), Regal Beloit Corporation (NYSE:RBC), and Freshpet Inc (NASDAQ:FRPT). This group of stocks' market valuations resemble RDN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BLUE,27,286752,-6 RARE,18,236444,0 RBC,19,204663,-5 FRPT,24,141032,4 Average,22,217223,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $217 million. That figure was $121 million in RDN's case. bluebird bio Inc (NASDAQ:BLUE) is the most popular stock in this table. On the other hand Ultragenyx Pharmaceutical Inc (NASDAQ:RARE) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Radian Group Inc (NYSE:RDN) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on RDN, though not to the same extent, as the stock returned 20.7% in Q2 and outperformed the market as well.
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Disclosure: None. This article was originally published at Insider Monkey.